New York State Supreme Court holds DEC's use of "But-For" Test is Contrary to the Brownfields Cleanup Program Statute

The latest installment in the Brownfields Cleanup Program (BCP) eligibility saga involves a recent October 2008 case from the Supreme Court in New York County, East River Realty Company, LLC v. NYSDEC, __ N.Y.S.2d ___, 2008 WL 4694535 (Sup.Ct. New York Cty. 2008), holding that DEC cannot use a "but-for" test when determining whether environmental contamination at a site "complicates" the redevelopment of that site.

The properties involved here are three blocks on the east side of Manhattan, one a former coal gasification plant, another a former electric generating facility and the last a former fuel terminal. These sites entered into DEC's Voluntary Cleanup Program in June 2001. Once the BCP was passed, the developer, East River Realty Co. (East River), like others in the VCP, sought admission into the BCP in March 2004.

In April 2005, DEC sent a final Cleanup Agreement for the East River sites and, on November 17, 2005, advised that the sites were eligible for entry into the BCP. East River executed the Cleanup Agreement and, when DEC was faced with having to executed the agreement, it refused and six months later advised East River that its sites were not eligible for the BCP. DEC applied a "but-for" test and determined that the contamination at the site did not "complicate" redevelopment because the redevelopment would have occurred without the benefits of the BCP.

Accordingly the only issue for the court to decide was whether Title 14 of the Environmental Conservation Law (the BCP) allows DEC to impose a but-for test in determining eligibility under the program. Because the statute does not explicitly impose a but-for test, the court looked to the statute's legislative history to determine whether the definition of "Brownfield Site", DEC's authorization to administer the BCP or principles of statutory construction allow DEC to use a "but-for" test.

After the BCP was originally passed in 2004, Governor Spitzer, in early 2007 - seeing that the program needed to be amended, proposed a Program Bill to tighten the eligibility requirements. The actual proposal was explained in August 2007 as requiring that the DEC impose a "but-for" test to determine whether a site is eligible for the program's tax benefits. That program never passed. Then, in April 2008, Governor Patterson introduced another program bill that proposed a "but-for" eligibility test be added to the BCP.

The Legislature did not adopt the program bill, but instead, in June 2008, adopted a set of amendments to the BCP. Although the legislation accepted and modified some other of the gubernatorial proposals from the program bill, the amendments did not include a "but-for" test. The East River Court held that the legislature's action "evinces a clear legislative focus" and a "clear expression of an intent not to impose a 'but-for' test." Accordingly, the Court determined that the DEC's use of the "but-for" test to deny East River admission in the BCP was arbitrary and capricious.

While not relying on the previous Supreme Court decisions in its ruling, the Court reviewed these decisions noting that they are useful in construing the term "complicated" in the statutory definition of brownfield. In the Greenwich case (discussed in prior posts), factors showing that contamination did not complicate redevelopment were that development could proceed without material regulatory delay or interference from DEC and developers had financing commitments in place. Whereas, in DestiNY and HLP (cases also discussed in prior posts), developers were enmeshed in ongoing and extensive regulatory oversight, sites were heavily polluted formerly industrial sites, subject to significant monitoring and oversight by DEC, financing of the development may be complicated by CERCLA liability. In sum, the Court noted that these decisions were correctly decided.

Lastly, the Court determined that because the DEC's decision was arbitrary and capricious, East River's eligibility date was prior to the new 2008 BCP amendments and that the site would be grandfathered under the old program's tax credit scheme, which was more generous than that under the current program.

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